Drop Labs – Skating to where the puck's going to be.

Google Wallet – A missed opportunity?

TL;DR – Google Wallet could have been a disruptive force in payments, if it had the courage to attempt to eliminate the point-of-sale rather than retrofit it with NFC. Also, Google seems to be overly reliant on the incumbents in the payments industry, instead of opening up their wallet api and inviting the wider android developer community to build innovative solutions that could have jump-started its adoption without being impacted by the slow progress of NFC at the point of sale.

UPDATE: – Apparently, rumors are abound that Apple may be planning to launch an update to its retail store iOS app that will allow consumers to utilize self-checkout for purchases of accessories and other shelf-stocked items at the company’s retail stores. With this move, Apple is taking the first step to disrupting the POS. Apple understands that it can provide a better customer experience and more profits by leveraging cross and up-sell opportunities if its store representatives were engaging customers instead of sticking them behind a POS. Apple store customers who just need a quick accessory purchase can now pick out their item, pay for it themselves and walk out, all with out having to stalk any available store represenatives. More over, Apple’s margins on these accessories may be quite thin that it makes sense for them to invest their store resources to selling Apple products with considerably higher margins. More info here.

By now, Google Wallet has launched with much fanfare in NY and SF. Unencumbered by the weight of our plastic credit cards, we are on the path to swifter transactions at the point of sale, buoyed by dreams of loyalty programs that know us by our past purchases and enticing contextual offers based on present location. Despite all the enthusiasm that permeates the ecosystem, the reality is – things are not as rosy as they look. Even though Google’s initiative is in its nascent form, they are off to a bad start. The emerging mobile payment ecosystem is fraught with much fragmentation and uncertainty on day one, and everyone including Google, Issuing Banks and the Carriers are responsible for the ambiguity that permeates the ecosystem today. There are considerable challenges (and opportunities) that await NFC based mobile payments at the point of sale, and I have covered many in my whitepaper. This post, is focused on what Google could have done better.

Recently, Citi – the only card issuer currently participating in Google Wallet, called on other issuing banks to quit waiting on the sidelines and sign up. Citi’s call to action reflects a painful reality in the nascent mobile payments ecosystem – despite Google, Citi, First Data and Master Card marshaling considerable resources to getting Google Wallet off the ground, everyone else wants atleast a couple more mobile wallet solutions out there before deciding to choose sides. Dickson Chu of Citi specifically stated that for most issuing banks, retailers and others, they can expect to participate in more than one mobile wallet initiative. Though he did not name it, he meant ISIS, the carrier led initiative that is currently six months away from a pilot in Utah and Austin. Chu wanted banks to consider Google Wallet even if they had their sights set on ISIS or other competing systems, and for them to know that it is absolutely normal to be wanting to be polygamous when it comes to mobile wallet partnerships.

On the other hand, “Mobile Payments” is fast becoming synonymous with NFC based proximity payments, with initiatives like Google Wallet and ISIS, and that is not necessarily a good thing. Mobile payments entail allowing the use of a mobile phone as the payment form factor instead of plastic to make a payment. Whether that transaction is enabled by NFC or not, every benefit proffered by adoption of a mobile wallet will still apply. Whether they be loyalty programs or contextual offers at the store, all of them are possible despite the presence or absence of NFC inside the phone or at the point of sale. Sure, delivering these offers or registering our purchases on specific loyalty programs could be achieved differently and in certain cases easily, by employing NFC at the point of sale. But there is nothing stopping someone from developing solutions, in fact there are a handful that exists today, that can already achieve these goals without NFC.

Weekend Trip:

This Saturday, as we normally do on weekends, I found myself at Costco, Walmart and our neighborhood grocer along with the rest of the brood. I timed myself at the point of sale, the time it takes for me to take out my wallet, swipe my credit/debit card, and enter a pin before the receipt prints. At all three locations, it took an average of 12 seconds to do so. Armed by my smartphone, and using a mobile wallet solution, I could have potentially reduced it by a couple of seconds, or drawn it out further, depending on how well trained the employee is at the point of sale, or how convoluted or simple the overall mobile wallet experience may turn out to be. Now, I also timed myself from the moment I entered the checkout line, up till the moment I took out my wallet to pay. That turned out to be about 15 minutes at Costco, 12 minutes at Walmart and about 8 minutes at our grocer. In an environment where mobile wallet adoption rides on the benefit to the customer, there is nothing offered today by Google Wallet (or ISIS from what I hear so far) that will help shave a combined 35 minutes off of my weekend trip that could have been well spent with my feet up on the couch and holding a cold beverage. Now, do you agree that we are focusing on solving the wrong problem?

Married to NFC: A missed opportunity

By being married to a technology, NFC in this case, ISIS and Google Wallet, the two major initiatives in the mobile payments ecosystem have chosen to be directly dependent on its scale of adoption at the point of sale. However infectious the excitement that permeates the mobile payment ecosystem, it apparently missed the merchants who argue that investments in new contact-less point of sale systems must be balanced by a reduction in the interchange fees that at times dwarf merchant profits. More over, consumers are not exactly banging on their doors screaming for the ability to pay with their smartphones. To add to this, the uncertainty about competing initiatives, questions about interoperability, scarcity of NFC-enabled handsets – each plays a counter productive role.

Google has maintained that Google Wallet will be based on an open standard and more importantly (to current stakeholders) will not expect a part of the interchange fees, It instead will focus on the potential advertising revenue. However, It almost seems that Google sacrificed a lot more for being invited to sit at the table. To placate the existing stakeholders in the payments chain, it seems that Google has chosen to ignore its capacity to innovate, the potential to disrupt the point of sale, or even eliminate it altogether. To cite my weekend experiment, a mobile wallet enabled smartphone could have allowed me to browse the aisles, compare prices at competitors and when ready, check out using my mobile wallet without needing to load up my cart with items, carry them to the front of the store, unload, pay, and re-load the cart before leaving the store. Instead, I could have scanned these items using my mobile phone as I added them to my cart, and paid for them when I was ready, without ever worrying about the checkout lines, the customer who pays with dimes, and the guy who has second thoughts about the life-size R2-D2 replica. The merchant, equipped with a smartphone, running an equivalent merchant app, could verify the items in the cart on my way out of the store. Square fired the first salvo in disrupting the point of sale, but even there, the merchant is still present at the point of sale, equipped with a Square card reader attached to a mobile phone. Instead of the checkout counter being anchored to the front of the store, they let it loose inside the store. Google should have taken it one step ahead, and eliminated it altogether. Google chose the easier way out, and despite the considerable clout it has, opted to play nice with the current players in the payment ecosystem and pawning its membership card in the innovator’s club. Sounds like missed opportunity to me.

Opportunities for others:

Though ignored by Google, this opportunity is not lost on others. For one, this is where I believe Paypal is heading with their suite of acquisitions – Milo, RedLaser, Where etc. Recently, they launched the Paypal Access Online Identity Program to allow customers to carry their payments identity to various retailers on the web. And they are steering clear of NFC at the point of sale, for multiple reasons – because of the scarcity of handsets and point of sale infrastructure to support NFC. More importantly, if PayPal were to begin to support NFC transactions which rely on existing POS and Card Infrastructure, PayPal’s gains will be much smaller compared to its current online e-commerce revenue, owing to existing cost structures for processing payments at the point of sale. Though Paypal has so far only rolled out solutions that augment existing POS infrastructure, I believe that once they have a comparable merchant footprint, they will circumvent the POS and Card infrastructure and create their own new service framework. A cloud based competitive backbone to the traditional payment networks could disrupt the current interchange environment. Sounds something like what Google should have done? Absolutely.

Open API? Define Open..

Google Wallet and its partners have touted its openness as one of the key advantages to issuing banks, retailers and others considering a partnership. But, the Wallet API has so far been closed to anyone beyond partners. What surprises me is that, with no discernible competition from other mobile OSes on the mobile wallet front, Google could have put considerable distance between them and any competitor mulling a mobile wallet launch (Apple? Microsoft?), by calling on its considerable android developer pool to create applications that leverage its Wallet API. By choosing to be overly reliant on NFC and hampered by its partnership with incumbents in the traditional payments framework, Google has missed an opportunity to engage and empower the numerous start-ups and developers who would have built their solutions on top of the Google Wallet framework. Such a scenario would have allowed Google to scale customer on-boarding and provisioning aspects of their Wallet framework, and more importantly – decoupled the success of Google Wallet from adoption of NFC at the point of sale. Google Wallet as a consumer oriented product at this time is no match for what it could have been – a developer oriented wallet framework at the heart of numerous solutions deployed through retail partnerships.

Once again, Paypal knows better – it has focused its X.Commerce offering squarely at developers, treating them as customers. Despite Paypal’s numerous apparent failings in keeping its customers happy, it has definitely displayed a capability to understand the opportunities and challenges involved. Google?

Conclusion:

Why Google ever chose to limit its wallet to NFC equipped devices is a mystery(or not – depends on who you ask). It both limited its viability and adoption, though this is expected to change in oncoming years. Though Google currently hones its product through a controlled rollout, it sounds as if it could have had millions more early adopters who would have created their own mobile wallets. Google could have utilized this opportunity to test user provisioning and onboarding, allowed users to set up Google Pre-paid accounts to fund transactions online and offline, at merchants equipped with their own Google wallet powered mobile wallets. All, with out ever worrying about the lack of enough NFC enabled POS systems. But to do that, Google had to be disruptive. Instead I believe it sacrificed its soul, its innovative spirit to pursue something far less disruptive and far easier for it to accomplish: advertising dollars. Sounds like a missed opportunity to me.

If you agree or disagree, please voice them below under comments:

If you read this far, you should follow me on twitter here. Connect with me on LinkedIn here.

I think it’s important to note that this mentions Citi and Google making calls for other banks to participate. I work for another bank, and we have been requesting for nearly a YEAR now to PLEASE be allowed to participate in the pilot. So far (as of last Friday) we still have not been permitted to do so.

Part of the problem here is that all of the established players in the industry realize that the world of payments is likely to change soon, and everyone is jockeying for position to be a major player in the new world and to keep everyone else from being a major player. The amount of $ on the table makes it difficult to cooperate.

http://www.movenbank.com Brett King

Cherian,

You make some good points, although I’ll have to disagree with you on the NFC focus of Google Wallet. To do away with the POS infrastructure as it is today, and totally change modality would be too much for even Google to tackle. The great thing about NFC is it uses the same infrastructure (network/standards/players) and is an incremental change that leverages off consumer behavior at the POS.

While mobile payments is becoming dominated by the NFC discussion to some extent, I think we’ll see a whole suit of P2P improvements come along in the next 5 years as well. One of the key areas where retail banking has really ‘screwed the pooch’ in the last decade has been not leveraging off the e-commerce age to re-engineer wire payments. In markets like the US, the myopic dedication of the industry to squeezing out the last bit of declining value from checks/cheques has led to a poor pricing of wire transfers, and lack of motivation to innovate. Hence why PayPal has been so successful. I think ClearXchange and other initiatives are examples of the sector responding too little, too late to the issues around P2P.

In this way, I don’t think Google Wallet has really sacrificed. Sure, they could have gone broader and wider, and to be honest, there’s nothing that prevents them from making the wallet entirely cardless or going for various upgrades outside of NFC. But Google is smart in that they know their future is still in advertising and advertising connected to your wallet is a massive market opportunity. Why? The reality is that there are tens of thousands of banks that will not be able to have their own mobile wallet and will have no choice but to co-opt Google’s and if I want you to use my card in an ‘open’ wallet format, I’ll need to use the advertising rails to stimulate loyalty and usage.

In this way, Google knows that utilizing the existing network and providing a new stimulant for card usage is a massive market. If they took on the banks head on with a totally new competing market, they’d have to rely on consumers to pay for the system. This way, the banks pay for the system and a future shift away from NFC to something cardless will be both funded and more palatable to consumers once the modality of payments have shifted.

Brett King
BANK 2.0

Michael McCormick

I greatly enjoyed your rant and agree completely. Google anointed partners are so competitive with everyone else no one will win any consensus.

I have worked in payments for 35 years and led many industry standards as a small company while other big powerful companies operated in more competition with each other than in an effort to be useful to the payments enterprise or product.

Big companies or banks want to work with big companies which creates high stakes competition and competing standards rather than cooperative ones. As soon as your standard was created by Mastercard the rest of the world is motivated to make theirs with Visa.

If Visa, Mastercard and others create a standard the government is going to sue them. They did so the 90s as Visa and Mastercaard attempted to create a standard for debit cards. In fact, every major retailer and mobile brand all compete with each other and has the same need to differentiate and avoid antitrust problems.

In my experience, a catalyst (typically consumer driven) is needed to create a dynamic marketing platform for the development of innovation like mobile payments to become relevant to everyone but geeks.

Google has all the power to create this catalyst if they just stopped picking the best partners and started looking at what the consumer wants! It has to work everywhere, they want to be treated with knowledgeable respect, get privileges designed exclusively for them and know they are getting the best prices and service possible. None of which has anything with NFC mobile payments at selected businesses.

Markets have all the information and pricing technologies
available to provide in store promotions. They don’t need Google to tell them how to treat their customers or track them. Especially if they have to pay for the promotion to their customer in their store in the price of the products purchased.

I also can’t think of 3 worse names to create a personally recognized and rewarded experience for Walmart than Mastercard, Google, and Citi bank. I trust them with my money and my searches but I don’t expect and will never expect them to represent a personally relevant experience at Walmart. In fact, I object to any of these companies releasing any personal information about me. In fact, I want to trust them to keep my information secret and safe.

So how does your phone become your wallet? It will take a generation to build appreciable demand. When can I get rid of my cards and only carry my phone? Two generations will be required to retrofit all POS and retire credit cards. At what benefit? So the complexity, risks and privacy issues of payments can be married with advertising and functionality for google’s Android application?

Sounds like a mess to me and I know the system backwards and forwards. I doubt the VIPs assigned to Google’s efforts don’t understand the competitive issues facing merchants.

I understand the Google mission to be in your hand and your payments. However, if they turn their mission to be hyper geographic and personally relevant over to the individual merchants Google could use clout to organize their consumers to want Google organized socially relevant rewards.

Build the catalyst first, let everyone benefit immediately and then tie it to the benefits of your “smart” phone. If the catalyst works adoption will be accelerated. Google may be a lost cause to their dreams of market ownership. However, Facebook represents a need for more immediate revenue models and may see it my way.

I built a lot of computer software solutions. Every successful one worked with a pencil before we built the software.

We will see how this all works out.

Mark S

It seems like the Author has not heard about fraud, security, store invetory and etc. including the importnace of securing consumers and merchants dollars. You have no idea what it takes to pull off a project like Google Wallet! there is again nay sayers….

http://zaoral.net/blog Ondrej Zaoral

Nicely written, however Google is right in this game. Google very well understands the power of platforms. They understand that maintaining the platform and serving end customers using the platform are two very different things.
Google does not need a platform for payments – Visa and MC is ok. The four party scheme is unbelievably powerful. It is the best global business model created on this planet (so far). Google does not need to process some transactions – even if I am sure they could with their technological capabilities. Google is not capable of handling customer interaction in retail finance – the company is just not built fot that and the experience with first Google branded Android phone proves that.
What they want and need is to expand their marketing platform. Right now they have a lot of info about you from your Android. If any MNO, or bank, or technical provider starts a Trusted Service Manager and puts their own wallet application into your phone, Google loses touch with important pieces of your spending behavior. It goes beyond payments – think about all the loyalty schemes.
PayPal also did not try to revolutionize everything – they provided an extremely well functioning acquiring solutions for online merchants. Without the power of the globally issued cardholder base, we would not know PayPal, because it would not exist on this scale. In this case, the issued base will will work for Google – generate behavioral data (which is priceless in today’s world).

http://www.randoxlabs Randox

RSS Subscribed! Great informational resource,I will tell a friend

Brian Lawe

Cherian,

If I understand the POV here, you are saying that shaving a couple of seconds from the 12 seconds to use a Credit Card at the POS, is a poor benefit to consumers for shifting to another payment option like mobile payments.

While I agree whole-heartedly, I am surprised that you proposed the following as an alternative value-proposition:

“..Instead, I could have scanned these items using my mobile phone as I added them to my cart, and paid for them when I was ready, without ever worrying about the checkout lines… The merchant, equipped with a smartphone, running an equivalent merchant app, could verify the items in the cart on my way out of the store.”

If you did your own time/motion study on your proposal, your “checkout” wait time of max 15 minutes (avg. of 12 minutes) might be reduced to 9 minutes when you account for your own scanning of each item (and removing items you put back on a shelf) as well as the time the merchant would take to re-scan things on the way out of the store.

So, you mock the 4 seconds of time/motion savings, but hang your hat on 3 minutes of time/motion savings?

Hardly an exciting value-proposition to the consumer who now has to do much more work (scanning each item themselves) and is still subject to merchant check-out reviews. Add in the potential for theft, error at scanning and your proposal makes the merchant proposition a likely negative.

So, you are right on the current model not offering enough consumer value — but your proposal doesn’t offer anything of consumer value either. If I have missed anything in my conclusions, please correct me.

Moshe Winegarten

In addition to Mordy’s point above, assume also that the merchant verification is actually only a “spot check” or better still, when i shop in Costco, after I have waited on line and put all my items through the checkout, they still have guys by the exit checking my receipt and items… this would be no different, but would still cut out the 12 mins at the checkout.

http://twitter.com/mordyk Mordy Kaplinsky

Cherian,

Your comments on the missed opportunities of the wallet are all valid, while the comments of your visitors are valid as well.

The sheer difficulties of working with the payments eco-system requires a gradual approach, and those that have tried to go for a full revamp have in the past failed. Some of the recent progress in Africa is promising but that was a greenfield market, whereas the developed world has an entrenched system.

Your point I believe is that Google’s approach here is not looking at ways to revolutionize the experience, but simply to gather the information so that they can further monetize it with search and offers. This approach creates no real incentive for truly creative and revolutionary products as they lack any real incentive to do so, their only value is to maintain the status quo wherever it is at the moment. Your example of a self-checkout cart is a good one and if at any time that or something else becomes a reality rest assured that Google will be there to gather that information to gain value.

The reason I believe Apple has been so successful is because they have a single goal, which is to improve the user experience. That goal unto itself allows them to focus on the product from a consumer value proposition instead of as a means to an end.

Google’s products have a single purpose in mind: Search. Every one of their products are oriented around it and act as gateways to it, and while the business model has provided immense value to all of us, it also hinders those products potential to some extent.

As to the comment by @ Brian Lawe: Please be a bit creative with the example and imagine the cart does it for you with RFID or the like. Now that all you need to do is bag the items, did u save some significant time?

Keith Benson

I think while the analysis here, and the general consensus is, Google missed the opportunity to be disruptive…… History will not be denied it’s disruption. The fact that Google has chosen not to be disruptive only helps ensure that the disruption, when it comes to the industry, will be unexpected, swift and destructive of incumbents……. Everything NFC as proposed, is not.

Bill

All contactless card/NFC for payments has been subsidized by one or the other brands. AMEX did one of the first roll outs several years ago. They were subsidized because the infrastructure upgrade cost is more than the merchants’ perceived ROI. In an attempt to seed the market and get past the chicken and egg problem, the brands were willing to pay for most, if not all the cost of the terminal and reader installations. Google Wallet and the ISIS group certainly can afford to write some checks. But the reality is that simply moving my credit card from my leather wallet to my iPhone doesn’t give me any benefit. It certainly doesn’t benefit the retailer.

There are a few venues that NFC payments make a lot of sense. Electronic transactions at unattended venues (e.g. parking, vending machines, kiosks) where cash and coin can be reduced or eliminated have an excellent retailer ROI. Think of the savings to the vending machine owner if they no longer had to visit to remove cash and coin. Contactless payments also means less maintenance since there is no “gozinta” – no place where anything “goes into a” slot. So no jammed cash receivers, mucked up card slots…

There are projects to make parking meters NFC capable. With power and a network connection, the meter could be managed remotely and no one would have to visit it unless Luke gets out his pipe cutter (classical reference). They will be able to adjust prices and available time remotely. they will have a clear picture of use and availability in real time. Add a sensor that can “see” if a vehicle is at the curb and it gets even more interesting.

It seems odd that these really smart people at Google and ISIS would focus so much on general retail payments. The real success will be in new and different uses of the technology and marrying it to location, loyalty, coupons, and other less tech-mature products.